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Practical Applications Summary
Corporate bonds are an essential source of financing for companies, and an important asset class for long-term investors. The UK markets can be murky, however: There is an abundance of issues, volumes can be low, and most trading is carried out between dealers and their clients with little data reported to the public.
Matteo Aquilina and Felix Suntheim of the Economics Department of the UK Financial Conduct Authority have shed light on the UK market through their comprehensive study of individual trades between 2008 and 2014. They find that although dealer inventories have declined significantly, there is no evidence that liquidity has deteriorated in the market. “If anything, the market has become more liquid in the last few years,” they conclude.
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